Hawaii Business CEO of the Year: Eric Yeaman

January, 2012

In the 4 a.m. darkness each workday, Eric Yeaman slips out of his house and into the garage. Closing the door, he flips on a large-screen TV for the latest news and sports, and runs three to six miles on his treadmill as a stress-reducing prep for another 12-hour day atHawaiian Telcom.

“I set things up in my garage because I don’t want to wake up my family or the neighbors,” says the 44-year-old CEO.

After his 45-minute workout, Yeaman showers and then leaves home while his wife, son and daughter are still sleeping. After stopping at a Starbucks for a calorie-free, iced decaf Americano, he’s in his 17th-floor Bishop Street office by 6 a.m., munching on oatmeal while planning another day of sea change at the iconic Hawaii company founded 129 years ago with a charter from King David Kalakaua.

Yeaman’s stamina and discipline have served him well over the past three years, as he carried Hawaiian Telcom from bankruptcy and malaise back to profitability, reliability and employee engagement. The company went from losing $150 million in 2008, to earning a profit three years later. When he took over, the company’s top line revenue was eroding by $10 million a quarter, says Yeaman. “We needed to stabilize that.” That has occurred, and now revenues have been holding steady at $100 million a quarter for the last eight quarters.

There are other encouraging numbers: Since it emerged from bankruptcy on Oct. 28, 2010, the company has generated $15 million in profit and now has a net worth of $300 million. It even placed in the 2010 and2011 Hawaii Business list of the state’s Best Places to Work, a ranking based primarily on anonymous employee surveys.

His success in one of Hawaii’s biggest and most difficult corporate situations is why Hawaii Business chose him as CEO of the Year for 2011.

Those who’ve known Yeaman since his college days recognize the past few years as just the latest manifestation of his inner strength.

“It’s a fine line he has to walk, and it’s going to be a pretty tough situation to get through. But if anyone’s going to get through it, he can,” says Daren Katayama, who heads his own accounting firm in Kailua-Kona, and has known Yeaman since they were both accounting students at theUniversity of Hawaii at Manoa College of Business.

Yeaman’s life has been shaped by personal tragedy. His parents divorced when he was 9, and then his father, stepmother and young sister died in an automobile accident when he was 19. That moment is seared in his memory: He was called off an airplane as he was leaving for a Colorado vacation with college friends. The plane pulled back to the gate and Yeaman was handed a piece of paper with a Big Island phone number and told to call.

“I was my father’s oldest child and here I was in the middle of Honolulu airport with this news. What helped me through was remembering what my father wanted for me. The reason I felt I could go on was asking myself, ‘What would my dad want me to do?’ He wouldn’t want me to give up. That’s what gave me the motivation to keep going.”

His ability to move forward despite adversity was one reason the Arthur Andersen CPA firm singled him out in 1998 to be project leader in the probate court’s management audit of Bishop Estate, now calledKamahemeha Schools. For nine months, Yeaman worked 16-hour days, seven days a week, unraveling the books for court master Colbert Matsumoto amid the trust’s financial and moral crisis.

“Initially, I was wary of whether he was up to the task,” says Matsumoto, recalling that Yeaman was barely 30 then. “I quickly learned my apprehension was unfounded. It didn’t take long for him to win my confidence and become a critical partner in developing my investigative strategy. Eric was smart, hardworking and tenacious. I placed him in some tough situations for a young professional, but he took on the challenges with courage and aplomb. He quickly identified the key issues and helped me marshal the right resources. Always prepared, I could count on him being one step ahead of whatever issue we faced.”

Even at that young age, Matsumoto says, “It was quite apparent he was bound to become a successful leader.”

Yeaman was recruited by Kamehameha Schools as its COO and CFO, moved toHawaiian Electric Industriesas financial VP, treasurer and CFO, and then was asked to lead Hawaiian Telcom by its former chairman,Walter Dods.

“I knew it was a long shot to get Eric,” Dods admits. “When he came in, the company was going through bankruptcy, going to be torn apart, and the workers didn’t know if they’d have jobs. He saved the company and almost all the jobs. That’s the way it really ought to be looked at.”

Dods says Yeaman first appeared on his radar during the Kamehameha Schools restructuring. “I had heard on the street that he did a very good job on the accounting side … [that] he was extremely principled and competent.” A little later, Dods spoke to a group of young, future leaders that included Yeaman and afterward they talked. “The more we talked the more I identified with him,” says Dods. “It was my first insight into how he handled people and what his personality and demeanor were like, and I was quite impressed.”

By the time Dods went looking for someone to save Hawaiian Telcom, Yeaman was at HEI. “He had all the qualities I felt were needed,” says Dods. “He understood strategic planning, was a utility executive, believed in community service. … One of the things I look for, too, was he started at the bottom, picking coffee in the Kona mountains.”

When Dods asked, Yeaman felt a sense of mission to rebuild the homegrown utility and reposition it for a more global future. But when he took over in June 2008, the company was falling apart. “The financial situation was dire,” he remembers. The company was $1.1 billion in debt, over-leveraged and requiring total restructuring.

“You have to assess the brutal facts and be honest about the situation and then you can find the path. … We needed to restructure the balance sheet, stabilize the business and reposition it for growth. And that would be shaped by looking for a combination of leaders who would work well in our local culture along with industry expertise from the mainland.”

Yeaman wasted no time. His new leadership team developed what he calls a “believable, strategic, back-to-basics” plan with a focus on what success would look like. Then a broad-based employee committee created a set of company values everyone could relate to their jobs. “I’ve had people tell me, ‘Now I know how my job related to the objectives of the company,’ ” he says.

He ordered an employee engagement survey in his first week and discovered that just 56 percent of employees were happy in their jobs. In the latest similar survey, at the end of 2010, 85 percent said they were happy.

“The culture is the hardest thing to change, but it’s the ballgame,” Yeaman says. “I read,‘Who Says Elephants Can’t Dance?’by Louis Gerstner, the guy who turned around IBM, and at IBM he said the culture was the single most important thing.

“We needed to give employees hope that we had a plan and that this company was being led by someone who grew up here, cares about this company and came here to run it. … I believe we’ve made a lot of progress but there’s still a lot to do.”

Overall, Hawaiian Telcom had 1,500 employees when Yeaman came aboard, and has about 1,300 now. The job losses came from attrition, retirements, outsourcing, store closures and a realignment of job positions due to changes in communications technology. For example, to fast-track growth in areas where it competes withOceanic Time Warner, the company realigned and redefined some jobs, Yeaman says. The realignment affected about 100 positions, primarily in areas of the business that have eroded or changed, but it opened 70 new or vacant positions geared to growth areas.

Of the union employees initially identified for change, about 30 percent stayed in their same positions because others in the same job classification took new positions; around 25 percent moved into newly created or different positions; and about 40 percent took buyouts. While job losses of any kind are hard, says Yeaman, his focus must be HT’s long-term success.

“There’s no question I’ve faced major challenges and [the labor issue] is a difficult challenge … My job is always to decide what is in the best interests of the company. I have to look at all the stakeholders and come up with what’s best, but we’ll stay the course.”

IBEW Local 1357’s business manager Scot Long declined to be interviewed for this story because of the sensitive nature of the union’s contract dispute, but former Local 1357 leader George Waialeale wasn’t so reticent. He says Yeaman’s compensation has created a stumbling block for some.

“When Eric gets a 400-percent raise, and everyone else gets squat, people are not too happy,” says Waialeale, who retired from the company six years ago, yet stays in touch. “But, when it’s better to have a job than no job, then everyone stays quiet. That’s what I hear. Sure they want their jobs. But, if you push the pendulum too far one way, it will swing back to the other and sooner or later the guys are going to get pissed.”

What few know is how much compensation Yeaman relinquished during the two years of bankruptcy proceedings, along with cuts in his compensation package mandated by the company’s lenders.

“All employees, including me, are part of a performance compensation program designed to make sure we are all focused on the things that are going to create value for the company,” says Yeaman. “It’s very much an incentive-based program, so if I wasn’t successful in working with the team, there would have been nothing. But if we were successful, there would be a payout. In the first year of a payout – 2009 – I waived my $600,000 bonus. I felt if I did that the court would be more apt to approve the payout for all the other employees. And it did. The total payout for all other employees was roughly $6 million, divided according to level and performance.”

Yeaman waived a second $5 million payment that would have come with the company’s change of control. His compensation – a package worth $6.7 million – must be earned over several years, he says, even though it’s sometimes reported as a single year’s total compensation.

While some sources say the recent labor difficulties reflect growing employee confidence in the company’s viability, Yeaman says Hawaiian Telcom still has far to go to solidify its future. He says it won’t get there without a dedicated team united around strong, central values.

One of his first actions was to rekindle a local cultural sensibility, something employees complained was missing in the years thatThe Carlyle Groupwas in charge.

“We call them our FAST values,” says Yeaman. “I told employees we need to find our North Star – what’s going to guide us – and that is a set of values. And that became something our employees could rally around.”

Yeaman’s down-to-earth style reflects his origins as a local boy who spent summers picking tomatoes, cucumbers, coffee beans and macadamia nuts on Kona farms. Nowadays, he personally greets employees in the elevator or on their own turf at far-flung Neighbor Island baseyards several times a year. He also makes time for a slew of community organizations and speaks at local events, especially back home on the Kona coast. He knows the importance of homegrown heroes because he vividly remembers how Kona-bornEllison Onizukawould speak to his and other classes before the astronaut perished in the 1986 Challenger explosion.

“It helped me dream about what I could do and be,” says Yeaman, whose father was one of Onizuka’s high school classmates. Yeaman remembers his dad and Ellison’s brother Claude getting together for meals. “I was this kid listening to adults talk about life and business. I was gaining real-life experience. I was this lucky kid.”

Chasing New Clients with New Technology

Hawaiian Telcom is moving from being “the phone company” into being an “integrated, full-service communications-technology company,” says Eric Yeaman. That places HT head to head against Oceanic Time Warner and other companies on a host of technology, data and communication services.

“We’re aggressively going out there to expand our footprint and go after new customers,” says Hawaiian Telcom spokesman Scott Simon.

Its new and expanded services include a full range of Internet Protocol services (IP), including ethernet, high-bandwidth data services, managed services and cloud-based services, which are coming online shortly. After almost a year of study, focus groups and equipment tests, the company in July began rolling out a new generation of TV/phone/Internet packages that use fiber-optic technology in partnership with Cisco and Microsoft. TV/phone/Internet package deals have helped Oceanic convert many phone customers away from Hawaiian Telcom in recent years, and now HT is fighting back.

Hawaiian Telcom is expanding this service neighborhood by neighborhood on Oahu, using the phone network. “Oahu has approximately 300,000 households and we’re looking to build out Oahu over the next four to five years,” Yeaman says. (To find out if your area is covered, go to hawaiiantel.com/TV.)

Yeaman touts the quality of his company’s technology and then adds, “What we’ve seen on the mainland is that price is not the area where you want to battle. You want to battle on the value and product and service side. It’s still competitive pricing, but not a race to the bottom either.”

HT’s revenue comes from three main sources: about one-third from residential customers, 43 percent from businesses and the rest from wholesale.

Wholesale includes servicing wireless phone companies and long-distance companies that use the statewide Hawaiian Telcom network. HT has upgraded 141 cell sites to 4G for its wireless customers and more upgrades are coming.